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Europe Opens New Microsoft Inquiry

BRUSSELS — The European Commission said Tuesday that it was beginning new antitrust proceedings against Microsoft, saying the company had failed to live up to a three-year-old agreement to give users of its Windows software better access to competitors’ Internet browser software.

Microsoft immediately apologized, calling it a technical problem it had learned of only recently. “We deeply regret that this error occurred and we apologize for it,” the company said in a statement
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But the software giant could nonetheless face a substantial fine for breaching the Europe Union’s antitrust rules by defying the terms of a settlement.

“If the infringements are confirmed, there will be sanctions,” said Joaquín Almunia, the European Commission official in charge of antitrust enforcement. He vowed to use “legal instruments with all my capacity to deter and to punish.”

The confrontation is a setback of sorts for the commission, the European Union’s executive agency, which has been trying to find non-litigious solutions to antitrust problems, particularly in the fast-moving technology field, to prevent cases from dragging on for years.

Mr. Almunia’s office is negotiating with Google to try to settle the commission’s concerns about the company’s dominance of the Internet search and advertising markets. The resumed compliance struggle with Microsoft, some legal experts said, could harden his position with Google.

Mr. Almunia’s announcement “sounds like a warning to Google and to other technology giants in the commission’s line of fire,” said Nicolas Petit, a law professor at the University of Liège in Belgium. It shows that “settling a case is not the end of the story” and that companies must follow up with “effective monitoring mechanisms.”

Mr. Petit pointed out that more than a year and a half went by in the case announced Tuesday before other companies in the sector reported the problem and the commission took action, “which suggests that this approach just did not work” because “no one noticed.”

In announcing the action on Tuesday, Mr. Almunia said Microsoft committed a serious breach of E.U. antitrust rules by not complying with commitments the company made in 2009 as part of the settlement. Those sanctions, he added, could be particularly severe because, if confirmed, this would be the first time a company had defied an antitrust settlement offered by the commission.

The potential fine could be up to 10 percent of a company’s global annual revenue. In Microsoft’s case that could mean a penalty of $7 billion, but it is probably unlikely to reach that level. The largest single fine ever levied by the European antitrust authorities was €1.1 billion, or $1.4 billion, in 2009 against Intel for abusing its dominance in the computer chip market. Intel is still appealing ruling.

The issue on Tuesday stems from the settlement of a case concerning Microsoft’s dominance in Internet browsers.

In Microsoft’s 2009 settlement, the company did not pay a fine but instead committed to installing a system called Browser Choice Screen with Windows to offer users alternatives like Chrome and Firefox to counter the strength of Internet Explorer, Microsoft’s own browser product.

On Tuesday, Microsoft blamed “a technical error” for not offering users the choice of browsers it had promised. The error affected 28 million personal computers running Windows 7 SP1, the company said in a statement.

The company said it only learned recently of the error when the commission sent a notification about reports it had received indicating that alternative browsers were not being offered on some personal computers.

Microsoft also said it took immediate steps to resolve the issue, and said it would send all affected users’ computers a software update by the end of this week allowing users to choose a browser other than Explorer.

“We have fallen short in our responsibility,” Microsoft said in a statement. “While we have taken immediate steps to remedy this problem, we deeply regret that this error occurred and we apologize for it.”

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Mr. Almunia also said Tuesday that more should be done in the future to monitor settlements in order to ensure that breaches do not go undetected for long periods of time.

“If the commitments are not really monitored, then compliance will not be high on the list of priorities for management,” said Emanuela Lecchi, a partner at the law firm Watson, Farley & Williams in London, who does not represent clients involved in the case.

E.U. officials said that the remedies negotiated in 2009 had already helped make the market for browsers fairer in Europe, where they said Chrome, Firefox and Explorer are nearly evenly matched.

The officials referred to measurements by StatCounter, a company that tracks browser usage, and which showed each with about 30 percent of the market in June across 50 European countries. Microsoft’s Explorer had close to 60 percent of the European market in July 2008.

Continuing to enforce the 2009 agreement by making Microsoft offer its Windows users a browse choice until 2014, when the measure was set to expire, “has proved very effective when implemented,” Mr. Almunia said Tuesday. “It gave consumers a real choice to use the product that most suited their needs,” he said.

Microsoft on Tuesday offered to extend that period by an additional 15 months.

The commission may have also been buoyed in its determination to crack down again on Microsoft after the commission’s victory in a different case last month, when the second-highest court in the European Union largely upheld a separate, billion-dollar penalty against Microsoft.

That fine was imposed in 2008 to punish Microsoft for breaching an order to modify the way it used its Windows computer operating system in the market for powerful network server computers.

Microsoft was “caught once before , so in their case it really should have been high on their list of priorities,” said Ms. Lecchi, the lawyer. She said Microsoft did have good reason to be “frightened of a big fine” in the case, given its track record.

The company said it had hired outside lawyers to lead an investigation into how the error occurred. “We understand the Commission may decide to impose other sanctions,” the company said.

Samuel Miller, an antitrust attorney in San Francisco with the firm Sidley Austin, declined to speculate on whether the European Commission would levy a fine against Microsoft, but he said Microsoft appeared to handle the error appropriately.

“Companies sometimes make mistakes, but Microsoft did what you would hope a company would do when it discovers mistakes, which is promptly disclose and promptly try to remedy,” said Mr. Miller, who was the lead counsel in the U.S. Department of Justice’s first antitrust case against Microsoft in the mid-1990s.

Nick Wingfield contributed reporting from Seattle.

A version of this article appears in print on July 18, 2012, on Page B3 of the New York edition with the headline: Microsoft Faces a New Antitrust Action and Fines in Europe. Order Reprints|Today's Paper|Subscribe